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2009 (12) TMI 511 - HC - Companies LawWhether the Company Court enjoys jurisdiction to issue supervisory direction to a securitisation company/secured creditor in connection with a company in liquidation or under winding up in the face of section 13 of the SARFAESI Act or securitisation company opting to stand outside the winding up is absolutely free to utilise the sale proceeds of assets of the company in liquidation? Whether the learned Company Judge committed a factual error by observing that the HSIIDC has hypothecation in respect of plant and machinery? Held that - We are in entire agreement with the view taken by the learned Company Judge because section 35 of the SARFAESI Act provide for overriding effect of its provisions with a non obstante clause of anything inconsistent with the provisions of that Act. It is only the inconsistency which would bar the application of other laws and not otherwise. There is no inconsistency in issues of supervisory directions in order to achieve the avowed object of section 529A of the Act as echoed by unnumbered five provisos of section 13(9) of the SARFAESI Act because there is no provision in the SARFAESI Act giving any conflict with the claim of the workers due as contemplated by section 529A of the Act. Thus question (A) is answered against both the appellants and their appeals are liable to be dismissed. We have examined the record and have also put it to the learned counsel for the HSIIDC as to whether there was any hypothecation of plant and machinery with it. The record does not show any such hypothecation nor Mr. Kamal Sehgal learned counsel for the HSIIDC has been able to support the aforesaid averments. Therefore there is factual error and to that extent the impugned order deserves to be modified. It is thus clear that the HSIIDC would be simply a secured creditor with regard to the raw material and in fact an unsecured creditor qua plant and machinery. It cannot claim any right of association with the process of sale or participation at par with the Securitisation Company. Appeal dismissed.
Issues Involved:
1. Jurisdiction of the Company Court over a securitisation company/secured creditor during liquidation. 2. Factual error regarding the hypothecation of plant and machinery. Issue-wise Detailed Analysis: Re: Jurisdiction of the Company Court over a securitisation company/secured creditor during liquidation The primary issue addressed is whether the Company Court can issue supervisory directions to a securitisation company or secured creditor in connection with a company in liquidation, despite the provisions of the SARFAESI Act. The court examined Section 13 of the SARFAESI Act, which allows secured creditors to enforce security interests without court intervention. However, Section 13(9) mandates that in cases involving a company in liquidation, the proceeds from the sale of secured assets must be distributed according to Section 529A of the Companies Act. The court referred to the Supreme Court's decision in Rajasthan Financial Corpn. v. Official Liquidator, which held that the distribution of sale proceeds must involve the Official Liquidator and be supervised by the Company Court. This ensures that the workers' dues and other creditors' interests are protected. The court concluded that the Company Court retains jurisdiction to issue directions to a securitisation company or secured creditor opting to stay outside the winding-up process and enforce security under Section 13(4) of the SARFAESI Act. The court also addressed the interplay between Sections 35 and 37 of the SARFAESI Act, emphasizing that the provisions of the SARFAESI Act have an overriding effect only in cases of inconsistency with other laws. The court found no inconsistency between the supervisory role of the Company Court and the SARFAESI Act's provisions, as both aim to protect the interests of all stakeholders, including workers. The court upheld the Company Judge's order, which allowed the securitisation company to stay outside the winding-up proceedings but required it to keep the Official Liquidator informed and include specific clauses in the sale notice about the pending winding-up proceedings. These supervisory directions were deemed necessary to ensure transparency and protect the interests of all stakeholders. Re: Factual error regarding the hypothecation of plant and machinery The second issue was a factual error in the Company Judge's order, which stated that the plant and machinery were hypothecated to HSIIDC. Upon reviewing the record, the court found no evidence supporting this claim. The court ordered the deletion of the erroneous statement from the judgment, clarifying that HSIIDC was a secured creditor only concerning raw materials and an unsecured creditor concerning plant and machinery. Consequently, HSIIDC could not claim the right to associate with the sale process or participate on par with the securitisation company. Conclusion The appeals were dismissed, upholding the Company Court's jurisdiction to issue supervisory directions to securitisation companies/secured creditors during liquidation. The factual error regarding the hypothecation of plant and machinery was corrected by deleting the erroneous statement from the judgment.
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